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Friday, September 6, 2013

Waddya Think? MMT OpEd writing campaign

The next round of insane debt ceiling debates is about to descend on Washington DC. I think this presents a great opportunity for MMT to grow, as it did during the 2011 fight. I suggest we all begin an OpEd writing campaign to our local newspapers. Given the state of print media these days, I'm sure many local papers would be happy to receive some free content.

I have attached a model OpEd that I drafted. I think it hits on most of the MMT talking points in a way that is widely understandable; of course nobody does this better than Warren, so I added 7DIF as suggested reading at the end. I'm happy to hear feedback on this draft and the idea of the OpEd Campaign generally. I'm sure these points will recieve a lot of criticism, but given the current state of economics in this country, I cant image people will hold us to too high of a standard  Lets do this thing!


Don’t fear the Debt
By XX

As the next Congressional showdown over the debt ceiling approaches, the whirlwind of Beltway discussions will once again tilt towards US debt and deficits. There are literally thousands of people in Washington whose job it is to analyze and commentate on federal budgets, deficits and debt. There are also countless organizations and think tanks dedicated to these subjects, many of which emanate from octogenarian billionaire Pete Peterson, who funds several debt-hysteria groups such as the Concord Coalition, Fix the Debt, and the more recent, youth oriented “The Can Kicks Back”.

Unfortunately, nearly all of these groups and commentators are dead wrong. Simply, the United States Federal Government is the monopoly issuer of its currency, the dollar. The US government is no longer under a gold standard, or any other fixed-exchange rate currency regime, and thus has the ability to issue currency in unlimited amounts and pay all its debts. Article 1, Section 7 of our Constitution grants the US Congress the unique prerogative to “coin Money [and] regulate the Value thereof.” Congress has assigned this incredibly important task to two of its agents: the United States Treasury and the United States Federal Reserve. These two government agencies work in tandem to ensure that funds are always available to meet congressional appropriations.  Contrary to consistent statements from economists, budget experts, members of Congress, and President Obama, there is absolutely no scenario in which the US Treasury can involuntary become insolvent, default on its debts, or “run out of money” (this is not the case for state and local governments, who are only currency users). Social Security, Medicare, and all other federal programs can never go bankrupt, regardless of the status of “trust funds” or other accounting mechanisms. All such concerns are remnants of the gold standard currency regime, which was ended domestically by Franklin D. Roosevelt in 1933 and internationally by Richard Nixon in 1971. Modern money is simply a means of facilitating commerce and moving real goods and services around the economy. As a fiat currency, the US dollar is no longer arbitrarily backed by the value of some shiny commodity; in our modern civilization it is backed by the ever increasing productivity of American workers.

So what is this debt, exactly? Our $17 trillion national debt exists mostly in the form of US Treasury securities, of varying maturity. These securities are simply a risk free, interest bearing alternative to dollar balances. They are functionally nothing more than savings accounts at the Federal Reserve. In fact, all values of US dollar deposits and treasury securities outstanding are accounted for by the Fed. Further, concerns about China funding our debt are misguided; the Chinese have earned several trillion in dollar balances in their reserve account at the Fed, by selling us goods and services for several decades. Instead of making the Chinese, or any other holders of US dollars, just hold these dollar balances in non-interest bearing accounts, the US Treasury offers debt, or its securities, as an interest bearing alternative to dollar balances. The market for US Treasury securities is broad, deep, and highly liquid. Since leaving the gold standard, the Treasury has never had any problem selling all of its securities at auction, and never will. There is also no such thing as “paying down the debt.” The value of Treasury securities outstanding has increased almost every year of our history, and the Treasury has been able to seamlessly roll over these securities since 1789, without any grandchildren involved. It can continue to do so into perpetuity, with interest rates determined not by markets, but by policymakers at the Federal Reserve.

Government debts are a risk-free asset to all private actors, and play an irreplaceable role in the global financial system. The sum total of bank reserves, cash, and US Treasury securities outstanding represent the dollar assets of the private sector. As a simple matter of accounting, the US federal deficit equals the nominal savings of the private sector, to the penny. Deficit spending does not subtract from anyone’s savings or “crowd out” the ability of the private sector to makes investments; to the contrary, all the dollars that the government spends in excess of those which it taxes back remain permanently in the private sector. Over the course of US history, our government has added around $12 trillion more than it has taken from its citizens. The simple fact that you or I have a dollar in our pockets is proof that the government has at some point spent more than it has taxed back. In no way should this be considered a bad or unsustainable phenomenon!

So what does this mean for policymakers?  If the deficit is too small (not enough spending or too much taxation) to overcome the natural and constant desire of the private sector (which includes individuals, large and small businesses, pension funds, foreign central banks, and others) to net save, unemployment will result. And right now, the massive hangover of private debt, including mortgages and student loans, is preventing the private sector from borrowing, lending, and expanding on its own, no matter what asset swaps and purchases the Federal Reserve may try. Therefore, it is the sole responsibility of Congress to deficit spend until the economy reaches full employment of labor and resources; nothing more and nothing less. The overriding economic concern of this spending is its ability to cause inflation, but not its creation of any arbitrary debt number or ratio. While some of this spending will certainly be considered “wasteful” by partisan observers, we must remember that absolutely nothing could be more wasteful than allowing millions of our fellow citizens to go unemployed or underemployed.

So given these conditions, what might be an easy way to increase employment? How about we stop taxing it! An easing or full repeal of the regressive FICA (payroll) tax might just do the trick. The latest employment figures for the summer of 2013 have been awful, and our current employment/population ratio remains painfully low. Getting to full employment should be the number one priority of anyone who calls themselves a progressive, because the political reality is that the American people will have little appetite for progressive reforms until the economy is strong. Our great nation has already suffered through five years of high unemployment, weak growth, and deferred dreams, represented by the nearly $5 trillion in lost economic output since the 2008 financial crisis. Dumb policymakers aside, we the people need not allow this tragedy to continue for one more day.

For more, please read “The Seven Deadly Innocent Frauds of Economic Policy” by Warren Mosler, and “Freedom from National Debt” by Former Deputy Secretary of the Treasury Frank Newman.

12 comments:

  1. My personal preference for the gold standard bit is instead of "tying our money to shiny metallic objects".....I prefer to introduce the additional bit about business and cronyism....for example:

    "why would you want the value of your money tied to the gold mining industry?"

    After all, under a gold standard, we are relying on the good will and productivity of gold mine CEO's to maintain the value of our money.

    just a thought, yours is the classic defamation case and is certainly true and meaningful. I just personally like the added dimension of further being under the thumb of potentially corrupt CEO's

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  2. "overnment debts are a risk-free asset to all private actors, and play an irreplaceable role in the global financial system."

    I'd try to preemptively avoid quibbles by saying "default risk-free" rather than "risk-free". There is still interest rate risk on securities, as far as i understand.


    The sum total of bank reserves, cash, and US Treasury securities outstanding represent the dollar assets of the private sector. As a simple matter of accounting, the US federal deficit equals the nominal savings of the private sector"

    I would say "net dollar assets" and "nominal net savings" for similar reasons.

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  3. MMT will never get any traction in the US as long as it advocates free trade (which is part of 7DIF).

    The dead end minimum wage JG is also controversial and poorly thought out.

    MMT emphasises tax cuts, but we need to increase spending on education, health care, infrastructure, SS, clean energy, etc..

    I think it would be better to stick to Lerner's functional finance and avoid the political baggage that is built into MMT.

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  4. MMT will never get any traction in the US as long as it advocates free trade (which is part of 7DIF).

    What's your alternative? Tariffs? Leading to another trade war?

    The dead end minimum wage JG is also controversial and poorly thought out.

    Which papers on this have you read by MMT economists? Read Mitchell and Muysken, Full Employment Abandoned?

    MMT emphasises tax cuts, but we need to increase spending on education, health care, infrastructure, SS, clean energy, etc..

    Warren Mosler emphasized tax cuts. Virtually all other MMT economists advocate spending.

    I think it would be better to stick to Lerner's functional finance and avoid the political baggage that is built into MMT.

    Macro is policy science in addition to a theoretical endeavor. The orientation of macro is addressing the trifecta of sustainable provisioning of real resources in a way that increases quality of life and standard of living, adequate income for all above the level of bare subsistence, and continuity of domestic price level and purchasing power of the currency. MMT is the only macro solution on the table that addresses these issues in way that plausibly escapes the trilemma of only two of these goals being achievable, so that some tradeoff is necessary, i.e, using one as a tool instead of a target. Anyone with a potentially more effective and efficient solution is welcome to surface it and well discuss it.

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  5. Now if someone wished to argue that the "defect" with MMT is that it is a capitalist tool like the rest of Keynesianism, I think a good argument can be mounted. But then, what is the practical alternative? I am not saying that there is none, but what is one that could plausibly be implemented quickly? On the other hand, if MMT caught on and went viral, the present swamp could be pumped out relatively quickly. It's doable and whole lot of a people would be better off. Do I think it is the ultimate solution. Well, I don't believe in ultimate solutions but certainly there is a next step beyond managerial capitalism and the domination of finance capital, and eventually there will be a solution beyond capitalism as we understand it.

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  6. We have gone through these debt ceiling battles a few times now over the past three years, and frankly, it has been revealed in each one that MMT has little that is practically useful to contribute to the public debate.

    The US Treasury has a bank account at the Fed. To spend, it has to have sufficient balances in that bank account. To get those balances, it collects taxes and sells debt. Under our current, legally established fiscal procedures, that's how the Treasury fulfills its spending commitments and meets its debt obligations.

    So unless MMT is recommending that those procedures be changed in some way, it isn't telling people anything they don't already know.

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  7. the MMT solution to the debt ceiling crisis doesn't involve changing anything but minds. Congress and the president erroneously think that the government borrows from the people and therefore has to raise revenue (read taxes) to pay the debt when it comes due with the implication if government continues to roll over debt and run it up it will run into the inter-temporal governmental budget constraint, which Scott Fullwiler's paper, Interest Rates and Fiscal Sustainability, shows to be not the case.

    This is also true of many other pseudo-problems. It's not a matter of changing the way things work as much as removing ignorance about how they work. The needed policy space is already available operationally. It's ignorance that is preventing its effective and efficient use due to the myths that Warren Mosler has set forth in Seven Deadly Innocent Frauds.

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  8. Right now, to pay its debts, the government either needs to have tax revenue or it needs to sell more debt. That's the bottom line. Is MMT recommending a different method?

    People already know the government can roll over its debt with more debt. So what is being added to the debate from a practical point of view?

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  9. Right now, to pay its debts, the government either needs to have tax revenue or it needs to sell more debt. That's the bottom line. Is MMT recommending a different method?

    People already know the government can roll over its debt with more debt. So what is being added to the debate from a practical point of view?


    No, the MMT solution is realizing that rolling over the debt is not the problem that it is thought to be. As long as r < g, then no IGBC, and the market doesn't set r, the Fed sets monetary policy including the policy rate, and the Fed is a government agency in this regard. Scott's paper should be sufficient to dispel the ignorance if &DIF is doesn't do the job.

    The country needs to wake up and realize that it is not debt that will burden future generations but the level of real resource availability. People are fixated on a pseudo-problem and ignoring the real issues that will affect the future.

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  10. No, the MMT solution is realizing that rolling over the debt is not the problem that it is thought to be. As long as r < g, then no IGBC, and the market doesn't set r, the Fed sets monetary policy including the policy rate, and the Fed is a government agency in this regard. Scott's paper should be sufficient to dispel the ignorance if &DIF is doesn't do the job.

    Tom, none of that is peculiar to MMT. As Scott has said in his posts, it all makes perfect sense in a mainstream framework.

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  11. Come on Dan, don't you think that your selling MMT short by saying that MMT has nothing to add to the current debate.

    For example, lets assume that all the current legal and institutional arrangements remain in place. In this example, MMT would not be advocating for changing anything about the current system. With this as our baseline, I think MMT's focus on seeing the economy through the lens of double entry accounting is revolutionary in and of itself. I have never once heard a mainstream economist or economic "journalist" reference US T-bonds from the private sector POV. Its always "Govt debt, blah blah blah", but never "if you want to reduce the amount of T-bonds outstanding, you are saying that the private sector should have less default risk free financial wealth." Flipping the debt conceptually from only being seen as a liability to recognizing that T-bonds are simultaneously a non-Govt asset is thought provoking all by itself.

    Which leads right into the sectoral balances. I have also never heard many mainstreamers acknowledge the reality of the financial flows between sectors and the accounting impossibility of all 3 sectors being in surplus in any given time period. These two observations alone would force any intellectually honest observer to rethink their preconceived notions. FYI, the sectoral balances are what ultimately converted me to MMT, so I can speak from personal experience to this point.

    And finally, no other economics camp has made the simple claim that the Govt is not revenue constrained a center piece of their analysis.

    For all of these reasons and many more, I humbly disagree that MMT has nothing to add to the current economic debate. Even without changing a single one of our current legal constructs.

    However, I would like to see MMTers more regularly focus on the private debt issue. I think that determining which way to grow the money supply, either through private sector or public debt expansion, is the most beneficial and sustainable should be a singular point of focus in economics.

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  12. "I just personally like the added dimension of further being under the thumb of potentially corrupt CEO's."

    Not sure what's worse.... being under the thumb of potentially corrupt CEOs or potentially corrupt government officials.

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